MYNEWS reiterated its guidance for a profitable FY23, underpinned by higher utilisation at its food processing centre (FPC) and its fresh food wastage being capped low. It guided for a net addition of 80 stores in FY23 (which is 60% higher than our previous assumption). We raise both our FY23-24F net profit by 8%, lift our TP by 9% to RM0.76 (from RM0.70) and maintain our OUTPERFORM call.

We came away from a recent engagement with the company feeling reassured of its prospects. The key takeaways as follows:

1. It reiterated its guidance for a profitable FY23 underpinned by higher utilisation at its FPC and its fresh food wastage being capped low.

2. It is confident that utilisation at its FPC will rise to 80-90% (from about 60% currently) underpinned by the availability of foreign workers and the growing popularity of its fresh food items.

3. It is also confident that its fresh food wastage will be capped at 15- 20% (which it has achieved since 4QFY22 which is in line with the industry average vs. c.40% during 1QFY22 to 3QFY22) despite the introduction of new ready-to-eat (RTE) meals. This will be achieved via better inventory control using sales projections based on historical daily sales data of each store.

4. MYNEWS guided for a net addition of 80 stores in FY23. It will be a balance mix of MYNEWS and CU stores with a total capex of about RM50m.

We raise our FY22-23F earnings forecasts by 8% each to reflect: (i) a higher net store addition of 80 to bring ourselves in line with the company’s guidance (vs. our previous assumption of 50); and (ii) improved cost efficiency, including more optimal fresh food wastage as mentioned.

We are keeping our assumptions on a net store addition of 50 in FY24F.

We are also keeping our same-store sales growth assumption of 12% in FY23 (driven largely by the full-year impact of the reopening of the economy) and normalised 5% for FY24 (see table on next page).

We like MYNEWS for: (i) the still under-penetrated convenience store market in Malaysia with approximately 111 convenience stores per million population currently based on our estimates, vs Thailand, Japan and Australia at 291, 445 and 268, respectively, (ii) it having returned to the growth path in terms of outlet expansion post the pandemic and the turnaround at its FPC, and (iii) its differentiation from competitors through Korean products.

We upgrade our TP by 9% to RM0.76 (from RM0.70) based on an unchanged 22x FY23F PER, in line with the sector’s average forward multiple. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 4). Maintain OUTPERFORM.

Risks to our call include: (i) the return of movement restrictions, hurting traffic to the stores, (ii) the playing field gets more crowded with new entrants or aggressive expansion by existing competitors, (iii) long gestation periods for new stores, and (iv) reduced overall sales from the generational tobacco ban.

Source: Kenanga Research - 27 Dec 2022